Chapter 13 Pipelines (local assessed) Louisiana Oil and Gas Association Louisiana Mid-Continent Oil and Gas Association

Transcription

1

2

3 Chapter 13 Pipelines (local assessed) Louisiana Oil and Gas Association Louisiana Mid-Continent Oil and Gas Association

4

5 Rebuttal to LAA Proposals for 2012 LTC Rules and Regulations Chapter 9 - Oil & Gas Properties By LOGA and LMOGA The Louisiana Oil and Gas Association (LOGA) and Louisiana Mid-Continent Oil and Gas Association (LMOGA) respectfully respond to the proposals related to Chapter 13 Pipelines by the Louisiana Assessors Association (LAA). Table 1307.A Current Costs for Other Pipelines (Onshore) LAA proposed to add to the footnote at the bottom of this table: For river and canal crossings, apply a factor of 2.0 to Cost per Mile figures in table above. LOGA/LMOGA objects to this proposal. The additional value is not significant when comparing the number of feet under river and canal crossings compared to pipeline mileage in the entire state. However, we object to this proposal for two reasons: The proposed revision would create a significant administrative burden for taxpayers to account for and separately report miles of pipe under rivers and canals and miles of pipe not under rivers and canals. Assessors would experience an increased administrative burden to separately assess this property that would result in an immaterial increase in assessed value. Buyers and sellers of pipelines do not assign greater value to pipelines just because it is under rivers and canals. If anything, they assign less value as these create potential liabilities. Table 1307.C Pipeline Transportation Allowance for Physical Deterioration (Depreciation) LAA proposed a schedule using a Life Expectancy Formula with a 35 year life and 30% residual rather than utilizing the current schedule in place, which was derived using the Marshall & Swift Valuation Service Manual. LOGA/LMOGA objects to the LAA proposed depreciation schedule for the following reasons. 1. A thirty five year economic life is not appropriate for locally assessed gathering/transmission pipeline. FERC regulated interstate transmission pipelines have a longer economic useful life for the following reasons: Interstate transmission pipelines carry residue gas to local gas distribution systems for the end user market. They will not permit gas in its systems that do not meet its gas specifications as to the content of NGLs, water and other impurities. Unlike gathering lines, main transmission lines are not exposed to the same corrosive chemicals because they have been removed as part of the gathering and treatment processes. 1

6 Local, Transmission and Gathering pipelines have a shorter economic useful life for the following reasons: The corrosive nature of the impurities that are transported in these systems. Local, transmission or gathering lines typically include thousands of miles of pipe that are located over a relatively small area. These lines are generally smaller diameter pipelines, sometimes called feeder lines, which connect individual wells or central production facilities to larger diameter lines or trunk lines. The economic useful life of local, transmission or gathering pipelines are generally dependent on the productive life of a particular gas field or fields localized in one area. When all the economically recoverable reserves in a field have been produced, the production activity in that field terminates, and the gathering systems connected to that field may cease to be useful. On the other hand, the economic useful life of interstate main transmission lines are not tied to the economic useful life of any single gas field, as transmission lines serve multiple fields, spread over a much larger area. 2. The proposed 30% residual is based on the assumption that maintenance expense extends the life of a pipeline. This information is based on data from the Chemical Engineering magazine. It is not specific to pipelines as it includes refineries, gas plants and other chemical industry properties. One of the components of the index used in calculating the residual or floor rate is the chemical index which is not used in calculating the pipeline replacement cost. This index is not specific to pipelines as it includes refineries, gas plants and other chemical industry properties. 3. The Life Expectancy Formula is not appropriate to calculate depreciation for locally assessed gathering/transmission pipeline. This method of calculating depreciation is very complex, bringing in many subjective factors including annual company stock returns, bond returns, inflation, and the asset service life. 4. See Exhibit A attached. This example shows a value comparison by year of two pipe segments and the effect if the Louisiana Assessor s Association s proposed depreciation schedule is adopted. 5. See Exhibit B attached. This is a list of Service Life and Salvage Values that other States and well known valuation publications use for Depreciation. Recommendation: We propose the Louisiana Tax Commission continue to use the current Table 1307.C, which is referenced from the published Marshall & Swift Valuation Service Manual. Please see the recommended Table 1307.C Depreciation Schedule below. 2

7 Table 1307.C Pipeline Transportation Physical Deterioration (Depreciation) Actual Age 26.5 Year Life Percent Good % % % % % % % % % % % % % % % % % % % % % % % % % % 27 and Older * 20.0% * Reflects residual or floor rate Note: See 1305.G (page PL-3) for method of recognizing economic obsolescence. 3

8

9 Exhibit 1 5 Year Pipe Value Comparison Sample 1 20 miles of 16" pipe installed in Onshore 2007 Value 2008 Value 2009 Value 2010 Value 2011 Value 2012 LAA Proposed Value Age 25 years 26 years 27 years 28 years 29 years 30 years Size 16 inch 16 inch 16 inch 16 inch 16 inch 16 inch Mileage Cost per Mile 413, , , , , ,640 Percent Good 20.0% 20.0% 20.0% 20.0% 20.0% 34.3% Total Value 1,653,440 1,728,400 1,858,200 1,968,400 2,006,080 3,153,130 Percent Change 4.5% 7.5% 5.9% 1.9% 57.2% Sample 2 20 miles of 6" pipe installed in Onshore 2007 Value 2008 Value 2009 Value 2010 Value 2011 Value 2012 LAA Proposed Value Age 17 years 18 years 19 years 20 years 21 years 22 years Size 6 Inch 6 Inch 6 Inch 6 Inch 6 Inch 6 Inch Mileage Cost per Mile 180, , , , , ,660 Percent Good 32.0% 28.0% 24.0% 25.0% 33.0% 67.8% Total Value 1,152,448 1,097,096 1,027,296 1,131,300 1,517,340 2,761,630 Percent Change -4.8% -6.4% 10.1% 34.1% 82.0%

10

11 Exhibit 2 Pipeline Economic Life and Depreciation Floor by State or Source State/Source Economic Life Depreciation Floor Comments Arizona 15 20% 2011 Personal Property Manual Chapter 6 Florida 22 20% Florida DOR Life Expectancy Guidelines Page 60 Georgia 22 20% Life Per IRS Publication 946 Idaho 10 20% Internal Revenue Service 22 0% IRS Publication 946, 0% Salvage Value Kansas 22 20% 2011 Personal Property Valuation Guide Louisiana % 2011 Rules and Regulations Marshall & Swift Valuation % Section 97 Mississippi 22 20% 2011 Industrial Class Lives & Industrial Depreciation Montana 10 20% 20% Floor on All Property With Max Life of 10 Years Nebraska 15 0% 0% Salvage Value Nevada 20 5% Personal Property Manual New Mexico 25 20% Property Class Life Schedule North Carolina 14 25% 2011 Cost Index and Depreciation Schedules Oklahoma % Per 2011 Business Personal Property Schedule Tennessee 16 20% Texas 35 10% 2011 PTD Schedule for Unregulated Pipelines Texas 32 25% 2011 PTD Schedule for Regulated Gas Pipelines Texas 35 10% 2011 PTD Schedule for Regulated Liquid Pipelines Utah 20 8% 2011 Class 16 -Life Long Property Schedule Wyoming 25 20% 2011 Life Tables for Oil & Gas Avg Life and Depr Floor: 22 16% Median Life and Depr Floor: 22 20% Recommended for Louisiana: %